Put Credit Spread on International Business Machines Corp. (IBM)

The premium on this trade is small but the odds of success are potentially large

Earnings season has just begun and it tends to make finding option trades a little bit more difficult. Generally traders try to avoid the announcement and any surprises it may bring. But there are a few opportunities out there, and here is one that has a relatively short time period to go for maximum profit potential, and it takes place before its expected earnings announcement.

The trade: Sell January 185/190 Put Credit Spread (selling the January 190 put and buying the January 185 put) for 45 cents or better.

The strategy: The maximum potential profit for this trade is $0.45 if IBM is trading above $190 at January expiration. The maximum loss is $4.55 ($5 –45 cents) if IBM is trading below $185 at January expiration. Break-even is $189.55 at expiration based on a 45-cent credit.

The rationale: It’s probably safe to say that most people are quite familiar with Big Blue, or as it is formally known, IBM. Since this trade may only last just over a week due to the option’s expiration, there is really not that much that can be gained from discussing the fundamentals of the company.

Now if we are talking technicals, the chart is setting up real nice for this trade idea to profit. The stock has been trading in an upward moving channel for about two months. Within the channel the stock has been in a classic uptrend setting higher pivot highs and higher pivot lows. Currently the stock is at the bottom of the channel, setting a higher pivot low and should be able to continue higher or at least not move below the channel’s trendline support. The premium may be small but the odds of success are potentially large.

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